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Starting in the mid 1990s, many courts began applying a more stringent standard for determining whether a franchisor could be held vicariously liable for the torts and other wrongful acts of its franchisees. The old standard applied traditional agency principles, asking the very broad question of whether the franchisor exercised “substantial control” over the day-to-day operations of the franchisee. Quite often, courts mistook the franchisor’s uniform operational standards (the use of the franchisor’s trademarks, mandatory hours of operations, food-preparation standards, and the like) for “control.” As a result, franchisors were often held accountable for the franchisees’ torts and other bad acts under the old standard. But under the modern test, courts examine the much narrower issue of whether the franchisor controlled the precise “instrumentality” that caused harm to the plaintiff — not whether it “controlled” the franchisee in the general sense of prescribing operational controls.

Until very recently, no Arizona court (state or federal) had yet decided whether, under Arizona law, the so-called “instrumentality test” or the traditional agency analysis should be applied. That changed in Courtland v. GCEP-Surprise, LLC, No. CV-12-00349-PHX-GMS, 2013 WL 3894981 (D. Ariz. Jul. 29, 2013), a case out of the District of Arizona. In Courtland, the plaintiff worked as a bartender and server at a franchised Buffalo Wild Wings® restaurant, and alleged that she was subjected to sexual discrimination, harassment, and retaliation by the restaurant’s general manager and an assistant manager. She filed a complaint alleging Title VII claims against the franchisee — GCEP-Surprise, LLC — and also against two franchisor entities, Buffalo Wild Wings, Inc. and Buffalo Wild Wings International Inc. (collectively, “Buffalo Wild Wings”). She alleged, among other things, that Buffalo Wild Wings should be held liable for the managers’ alleged harassment.

The court rejected the plaintiffs’ claims. Finding the instrumentality test to be the “‘predominant test’ for holding a franchisor vicariously liable,” the court concluded that, although Buffalo Wild Wings, “maintained strict guidelines as to the presentation and operation of the Restaurant,” that fact did “not establish, without more, that [it] had control over the [r]estaurant’s managerial staff.” Since Buffalo Wild Wings did not hire, fire, or supervise the managers — the “instrumentality” that caused harm to the plaintiff — it could not be held vicariously liable for their alleged harassment. Accordingly, the court granted summary judgment in favor of Buffalo Wild Wings on plaintiff’s claims.

If the reasoning of Courtland is adopted by other federal and state courts in Arizona (which is likely), it will be far more difficult to hold franchisors liable for acts committed by franchisees and their employees in this state. In most franchise systems, franchisors do not hire, fire, or supervise the franchisees’ employees. And those employees are, in the vast majority of cases, responsible for harming other employees, violating employment laws, or causing injuries to customers, which in turn are the most frequent reasons why franchisors are sued, despite not being directly involved in the actions that gave rise to the lawsuit. In short, Courtland could become a pivotal case in Arizona, making it harder to sue franchisors for the bad acts of their franchisees.